Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Tax treatment of award by XXXXXXXXXX
Position: 1. Taxable under either 56(1)(n) or (o)
Reasons: 1. question of fact -depends upon nature of research being done for which expenses are being reimbursed
Lena Holloway,C.A.
XXXXXXXXXX 2003-005248
613-957-2104
February 11, 2004
Dear Sirs:
Re: Tax Treatment of Annual Travel Allowance
We are writing in reply to your letter of December 10, 2003, requesting assistance in determining the tax treatment of a specific component of the award program offered by the XXXXXXXXXX (the "Foundation"). In particular, the fund in question was described in XXXXXXXXXX Agreement that was attached to your letter as the "Annual Travel Allowance".
Under the XXXXXXXXXX program, a doctoral student can receive a payment of up to $XXXXXXXXXX per year as the base stipend, which is intended to cover the cost of tuition and reasonable living expenses. In addition, an Annual Travel Allowance of $XXXXXXXXXX is available annually to each qualifying doctoral student to support research-related travel approved by the Foundation and to cover networking expenses. The Annual Travel Allowance is intended to reimburse approved research-related travel expenses and to cover expenses associated with events and joint projects undertaken within the framework of the Foundation's programs.
The Foundation does not provide advances for travel. Rather, expenses must be borne up-front with reimbursement by the Foundation requested subsequently. The Annual Travel Allowance must be used, in part, for research at an institution or fieldwork location away from the home university of the doctoral student, and outside the province in which that university is located. This time away may be spent inside or, when related directly to the scholar's research, outside Canada.
The Annual Travel Allowance would likely be taxable under either paragraph 56(1)(n) or (o) of the Income Tax Act (the "Act"). Amounts included in income under paragraph 56(1)(n), net of the applicable exemption, include fellowships, scholarships, bursaries and most prizes for achievement in a field of endeavour. Aside from certain prizes, these amounts are generally paid to further the education of the recipient.
Research grants, on the other hand are required to be included in income under paragraph 56(1)(o), to the extent that the grant exceeds the total of the allowable expenses incurred by the taxpayer in the year for the purpose of carrying out the research. Paragraphs 21-24 of IT-75R4 Scholarships, Fellowships, Bursaries, Prizes, and Research Grants provides examples of what would be considered a research grant for purposes of paragraph 56(1)(o) of the Act. In particular, paragraph 22 explains that "research" involves a critical or scientific inquiry aimed at the discovery of new facts, or the development of new interpretations or applications.
In order for a grant to be considered a research grant, the terms of the grant must establish that the primary purpose of the grant is to carry out research. The XXXXXXXXXX Agreement states that the Annual Travel Allowance will "reimburse approved research-related travel expenses" and that it "must be used in part, for research at an institution or fieldwork location away from home". It is however, a question of fact if the particular type of research will satisfy the requirements of being "a critical or scientific inquiry aimed at the discovery of new facts or development of new interpretations/applications". Therefore, it is the nature of the research undertaken in each case which would determine if the Annual Travel Allowance will be an income inclusion under paragraph 56(1)(n) or paragraph 56(1)(o) of the Act.
Provided the type of research being undertaken meets the above requirements, the reimbursements would be included in the recipient's income under paragraph 56(1)(o) to the extent that the amount exceeds expenses incurred to undertake the research. While paragraph 56(1)(o) provides that, in order for research expenses to be deductible from the grant, the research expenses must be incurred in the same year in which the research grant is received, in some cases expenses incurred in the immediately preceding or following year may also be deductible against the grant. Please refer to paragraph 34 of IT-75R4 for more information in this regard.
Please note that tax does not have to be withheld at source from amounts that are included in the recipient's income under either of paragraphs 56(1)(n) or (o). However, under subsection 200(2) of the Income Tax Regulations every payer of a research grant, scholarship, fellowship, bursary or prize (other than a prescribed prize) must report the amount on an information return T4A.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.
We trust the above comments are of assistance.
Yours truly,
Wayne Antle, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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